Two thirds of regulated firms worry about an AML breach

The “worrying weight of compliance” is taking its toll on regulated firms in the emerging financial sectors, with more than two thirds saying they are concerned about committing an anti-money laundering (AML) breach.

One in five go even further, saying they are “very worried” about the robustness of their compliance procedures.

The admissions are revealed in a comprehensive new survey of 500 compliance decision-makers in banks, challenger banks, crypto platforms, property developers and gaming outlets by SmartSearch, the leading UK provider of digital compliance solutions.

Last year, £6.4bn is estimated to have been laundered using cryptocurrency, while corruption watchdog Transparency International UK has calculated that £6.7bn of suspicious funds has been invested in UK property since 2016.

Casinos were the most anxious about their regulatory risks, with more than a third (34 per cent) saying they were “very worried” about breaking the rules. Almost one in five (18 per cent) crypto exchanges were similarly nervous about their compliance responsibilities.

Martin Cheek, managing director of SmartSearch, said: “As regulators fine and name and shame an increasing number of firms, the worrying weight of compliance is clearly a big concern for regulated companies, particularly those in the neo financial sectors like cryptocurrency and challenger banking.”

However, despite their concerns, many firms also admit to a continuing reliance on flawed manual processes to verify customers. More than a third (40 per cent) said they verified new individual and business clients manually – wrongly believing that copies of official documents like passports or driving licences provided “reassurance” that customers were genuine.

In fact, official documents are easily forged by sophisticated criminals and, by not verifying them, firms are making themselves more vulnerable to the breaches they are worried about committing.

The survey is the third in SmartSearch’s continuing Electronic Verification Uncovered campaign, which aims to make regulated firms aware of the dangers of relying on flawed, old-fashioned methods of identity verification. The campaign argues that regulated businesses should use digital compliance to ensure they properly identify and screen clients – as recommended by the Government in the 2020 Money Laundering and Terrorist Finance Act – to stem the flow of dirty money into the UK and protect firms from the fines and reputational damage which come with breaches.

SmartSearch has recently launched its next-generation platform which includes a seamless new interface as well as a host of features and a level of configurability never before available. Its digital compliance solution supports more than 6,000 clients and 55,000 users across the world, helping them deploy millions of complex identity checks in seconds.

Martin Cheek added: “What’s concerning about our survey is that it shows that a significant number of regulated firms have concerns about being vulnerable to an AML breach but aren’t doing anything to mitigate the risk – even though the regulators are becoming more likely to enforce the rules and crack down on breaches. Breaking the regulations unintentionally is not a defence. These firms should be investing in a digital compliance solution to protect themselves from the potentially eye-watering fines and considerable reputational damage which accompany a breach.”

The research was conducted by Censuswide with 500 compliance decision-makers, aged 18+, who are in crypto (exchanges, OTC traders), gaming (casinos, online betting platforms, high-street betting shops), property development and banks (including challenger banks) between May 26 and July 2, 2023. Censuswide abides by and employs members of the Market Research Society, which is based on the ESOMAR principles, and are members of The British Polling Council.